Thousands of current and former John Lewis Partnership employees are to get a payout after the retail giant revealed a £36 million hit from falling foul of national minimum wage rules.
The group, which has a flagship branch in Edinburgh, said it was in talks with HM Revenue and Customs after it emerged the company has been technically under-paying staff due to pay averaging.
In its annual report, John Lewis announced £36 million has been set aside to cover potential back payments for the past six years, although the final cost is still unclear.
It stressed the group’s hourly rates of pay have never been below the minimum wage
Instead it said the blunder came as a result of its practice of averaging pay out over a year to ensure workers are paid a consistent amount each month, which it now believes breaches national minimum wage rules.
It said: “This arrangement was implemented to support partners with a steady and reliable monthly income, but we now believe this arrangement may not meet the strict timing requirements for calculating compliance with the national minimum wage regulations.
“Once we have completed our detailed review, we will make any retrospective payments required to current and former partners affected.”
John Lewis, which also owns supermarket chain Waitrose, said it was already making plans to pay back affected staff and contact former employees.
Sir Charlie Mayfield, chairman of the John Lewis Partnership, said the group was now working with HM Revenue and Customs to ensure its pay practices meet minimum wage and living wage rules.
He added: “We expect to do this as quickly as possible. However, it is likely these discussions will take some time to be completed.”
The revelation marks the latest payroll error in the retail sector after Tesco said in March it was reimbursing 140,000 current and former workers who were left underpaid.
Tesco paid affected staff up to £40 each after it found voluntary contributions made by some people to benefits such as pensions and childcare vouchers led to errors that resulted in their pay after salary sacrifice not reaching National Living Wage levels.
In February, Debenhams and Argos also revealed staff were paid less than the living wage due to payroll mistakes.
But John Lewis said aside from the under-payment error, it pays staff more than 20% above the National Living Wage on average.
It hiked staff pay by 2.7% in April, to £8.90 an hour, although it slashed its employee bonus to 6% of annual salary - the lowest since the 1950s - amid warnings over “uncertain” trading conditions.
The group’s annual report also showed that Sir Charlie has waived his bonus for 2016/17, which would have seen him land a £66,000 payout, and did not take a pay rise in April.
He said the bonus moves “reflected the need to strengthen the balance sheet of the partnership while accelerating investment in Waitrose and John Lewis, in what we expect to be an uncertain market”.
“This requires the commitment of every single partner and in recognition of this I have this year decided to waive my own bonus and forgo an increase in salary.”
His total pay for 2016/17 fell to £1.4 million from £1.5 million the previous year.
But Sir Charlie did receive a 4.9% pay rise in April 2016, taking his annual salary to £1.11 million.
Earlier this year, John Lewis posted a 21.2% increase in annual underlying pre-tax profits to £370.4 million for the year to January 28, but has cautioned over job losses and said it was battling against cost pressures from the pound and a dramatic shift in consumer spending.
Its workforce has shrunk to 86,700 from 91,500 in 2016, according to the group’s latest annual report, although it said the average number of full-time equivalent employees fell by 600 to 63,300.